Scientific Research and Experimental Development (SR&ED)
To encourage Canadian businesses to conduct research and development (“R&D”) in Canada, the Department of Finance has a Scientific Research and Experimental Development (“SR&ED”) Tax Incentive Program (“Program”). This program is administrated by the Canada Revenue Agency (“CRA”) and provides significant tax incentives to R&D businesses by providing a SR&ED Investment Tax Credit (“ITC”) which is refundable in cash or can be used to reduce corporate or personal incomes taxes payable.
Who qualifies?
Canadian corporations, individuals resident in Canada, Canadian partners of a Canadian partnership, and beneficiaries of a Canadian trust qualify and can all apply to this Program. This includes Canadian businesses of all sizes and in all sectors which conduct R&D in Canada.
How much can you get?
Entities and individuals that qualify will be able to deduct 100% of the expenditures in the tax year that they are incurred; in addition, you may also qualify for an ITC which ranges from 15% up to 35% of the qualified expenditures, depending on whom is claiming the expenditures. The ITC comes in the form of a reduction of income taxes or a cash refund or both, depending on the circumstances.
What work qualifies for SR&ED tax incentives?
To qualify as SR&ED, the work must meet the definition of one of the following:
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Basic research – research purely to gain scientific knowledge;
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Applied research – similar to basic research, but with a specific practical application in view; or
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Experimental development – performance of research to achieve technological advancement, which will help the development of new products or processes or improve existing ones.
The work must be a systematic investigation or search by means of experiment or analysis. Each approach taken to resolve uncertainty should be a planned experiment based on an idea or a concept.
What expenses are eligible?
All expenses that are directly related to SR&ED work are eligible, for example:
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Salaries or wages
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Contracts
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Materials
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Overhead and other expenditures
What expenses are ineligible?
A new or improved product does not always mean that a technological advancement has been achieved. The following types of expenditures are disallowed under the SR&ED Program:
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Marketing research
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Quality control or routine testing of materials, devices, products or processes
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Exploring and evaluating mining or oil and gas properties
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The commercial production or use of new or improved material, device or product
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Style changes
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Routine data collection
We're Are Here To Help
To find out whether you qualify and determine if your expenditures are eligible for the SR&ED Program, contact one of our SR&ED experts today. For more information on the SR&ED Program, please visit the CRA’s website.